ATO Interpretative Decision

ATO ID 2005/180

Income Tax

• This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade. The ATO ID is current in relation to the re-enacted or remade provisions.
  Australia's tax treaties and other agreements except for the Taipei Agreement are set out in the Australian Treaty Series. The citation for each is in a note to the applicable defined term in sections 3AAA or 3AAB of the International Tax Agreements Act 1953.

Issue

Are director's fees received by the taxpayer, a Thai resident from services performed in Thailand as a director of an Australian company included in the taxpayer's assessable income under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The director's fees received by the taxpayer, a Thai resident, from services performed in Thailand as a director of an Australian company, are included in the taxpayer's assessable income under subsection 6-5(3) of the ITAA 1997.

Facts

The taxpayer is a citizen of Australia.

The taxpayer is a resident of Thailand for taxation purposes.

The taxpayer is a non-executive director of an Australian resident company.

The taxpayer receives director's fees from services performed as a director of an Australian resident company.

The taxpayer performs their duties as a director in Thailand.

Reasons for Decision

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non-resident taxpayer includes ordinary income derived directly or indirectly from all Australian sources during the income year and other ordinary income that a provision includes as assessable income on some basis other than having an Australian source.

Director's fees are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.

In determining liability to Australian tax on foreign sourced income, it is necessary to consider not only the income tax laws, but also any applicable double tax agreements contained in the International Tax Agreements Act 1953 (Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 and the ITAA 1997 so that those Acts are read as one.

Schedule 30 to the Agreements Act contains the double tax agreement between Australia and Thailand (the Thai Agreement). The Thai Agreement operates to avoid the double taxation of income received by Australian and Thai residents.

Article 16 of the Thai Agreement provides that director's fees and similar payments derived by a resident of Thailand, in the capacity as a member of the board of directors of a company which is a resident of Australia, may be taxed in Australia.

Taxation Ruling TR 2001/13 discusses the Commissioner's views on double tax agreements. Paragraph 104 of TR 2001/13 provides that the OECD Model Tax Convention and Commentary will often need to be considered in interpreting double taxation agreements.

The OECD Commentary provides that in relation to Article 16:

Since it might sometimes be difficult to ascertain where the services are performed, the provision treats the services as performed in the State of residence of the company.

The OECD Commentary further provides that Article 16 would not apply to a member of a board of a company exercising their function in the capacity of an ordinary employee, adviser or consultant.

Australia, as the country of residence of the company, being the country of source, has the primary right to tax the director's fees paid by the company to the taxpayer as a member of its board of directors on account of services rendered.

Article 23 of the Thai Agreement also provides that income, derived by a resident of Thailand under Article 16, may be taxed in Australia, and shall, for the purposes of Article 24 and of the income tax law of Australia, be deemed to be income from sources in Australia.

Accordingly, as the taxpayer's services are treated as being performed in Australia, the director's fees received by the taxpayer from services performed as a non-executive director of the Australian company are included in the taxpayer's assessable income under subsection 6-5(3) of the ITAA 1997.

Year of income:  Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
   section 6-5(3)

Related Public Rulings (including Determinations)
Taxation Ruling TR 2001/13

Other References:
OECD Model Tax Convention on Income and on Capital Condensed Version, January 2003

Keywords
Directors fee income
Double tax agreements
Foreign income
International tax
Non resident individuals
Thailand

Siebel/TDMS Reference Number:  4664897

Business Line:  Public Groups and International

Date of publication:  24 June 2005

ISSN: 1445-2782